ACCC issues fifth Telstra accounting separation current cost reports

The Australian Competition and Consumer Commission today issued the fifth current cost accounting separation report relating to Telstra.

The report is intended to provide greater transparency of Telstra's operations to ensure that it does not unfairly discriminate between access seekers using its network services and its own retail operations.

The report contains current cost financial information for 'core' telecommunications access services.  It constitutes the information that the ACCC is required to make public in respect to current cost accounting under the Ministerial Direction on accounting separation issued by the Minister for Communications, Information Technology and the Arts in June 2003.

The report provides present day valuations of Telstra's assets that are compared with the historical or original cost of these assets. The report also includes profit and loss and capital employed statements prepared on a current cost basis.

The report indicates that on a current costs basis, the aggregate values of assets for the core access services are substantially higher than the historical asset valuations. It is important to note that the information does not represent the forward looking cost of assets nor is it calculated using a fully or substantially optimised network configuration*.

"The pending operational separation arrangements for Telstra may have implications for the necessity to report Telstra's financial data in this way, or the form that any future reporting may take", an ACCC Commissioner, Mr Ed Willett, said today.

"The ACCC, therefore, has recently agreed to a Telstra request to a six-month deferral to a complete implementation of current cost asset valuations. This will ensure that Telstra will not be required to incur possibly unnecessary costs (which, according to Telstra, amount to between $5 m and $10 m) in order to complete the remaining current cost valuations".

Copies of the report will be available on the ACCC's website.

*In determining access prices for a number of services, the ACCC has used a costing methodology based on total service long-run incremental cost (TSLRIC) which is a forward looking, optimised economic costing approach.

Background

In December 2002, the Federal Government made provision for an enhanced accounting separation of Telstra's wholesale and retail operations with the passage of the Telecommunications Competition Act 2002. Under this Act, the Minister for Communications, Information Technology and the Arts issued a Direction on 19 June 2003, instructing the ACCC to issue Record Keeping Rules (RKRs) under its powers under the Trade Practices Act 1974, requiring Telstra to provide the ACCC with reports on, among other things, current costs in addition to historical costs for the core services. It is a requirement of the direction that certain information contained within the reports be made available to the public.

The ACCC issued an RKR to Telstra with respect to the first reports required under the direction at the end of June 2003. In September 2004, the ACCC issued a new record keeping rule which specifies the requirements on Telstra to fully implement the current cost accounting framework. Leading up to this, the ACCC worked closely with Telstra to determine the timeframes over which systems can be put in place to provide regular full current cost valuations. Telstra is making good progress in putting systems in place to enable periodic revaluation and reporting of all of Telstra's assets on a full current cost basis. While it had been expected that this work would be completed by the end of 2005, uncertainty arising from the implementation of the operational separation of Telstra has meant that this work will not complete before mid 2006.